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1 Foreclosure, Loan Modification, Tenants and Homeowners – An Overview Maeve Elise Brown, Esq. Executive Director Housing and Economic Rights Advocates (510) 271-8443 ext. 307

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1

Foreclosure, Loan Modification, Tenants and Homeowners – An Overview

Maeve Elise Brown, Esq.Executive Director

Housing and Economic Rights Advocates(510) 271-8443 ext. 307

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Non-Judicial Foreclosure Timeline

Governed by Civil Code Sections 2920-2944.5

Letters from servicers to borrower requesting payment (generally at least three over a course of 90 days)

Special Notice and Meet and Confer Requirements for certain residential loans – Civil Code Section 2923.5

Notice of Default (“NOD”) – Civil Code Section 2924

Three month waiting period (essentially for non-HAMP servicers)

Notice of Trustee’s Sale – good for 365 days

Sale can occur 20 days later

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Stopping Foreclosure - Options

Right to ReinstatePay amount currently in default – NOD period

Right to CurePay off the entire balance of the loan plus lender’s reasonable costs and expenses – up to 5 days before sale

Forbearance AgreementLimited. Generally, no promises. Not always useful. compare to “trial” modification

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Stopping Foreclosure - Options

Repayment PlanModification

Changes the terms of the original note

Refinance Short sale? Careful!!Deed in Lieu of ForeclosureBankruptcy can halt a sale

But it won’t always help you keep the house

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Overview of Mortgage Servicing

Borrower – made contract with lender/ “investor”Investor owns loan – can have rules for the servicer, including restrictions on modificationServicer = the entity borrower interacts with

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Modifications: Home Affordable Modification Program Overview

Initial Eligibility - including servicer participation and investor restrictions

Target Payment – PITIA = 31% of gross monthly income

HAMP “Waterfall” – adjust terms in a particular sequence to see if can arrive at a hypothetical modification that will make the PITIA equal to the target payment

NPV Test

Three-month Trial Period

Permanent Modification

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HAMP Permanent Modifications

5 years at 31% of gross, then stepping upPrincipal forbearance possibleAmortization issues – balloon payments possiblePrincipal forgiveness possible, but has been VERY UNLIKELY. Problems with processing modifications? YES.

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Alternatives

Traditional modifications: “black box”Often less favorableNew “trial” modification periods for in-house modificationsShort sale after denied for HAMP: HAFAMHA Unemployment Program, Hardest Hit Fund (Cal HFA)AG Settlement- but cannot apply, supposed to automatically be considered

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Legal Claims

Origination claims generally timed out right now

Three year period for rescission of loan under TILA/HOEPA; four year statute of limitations for fraud on written contract.

Role of legal claims in modification

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Mortgage Servicing Issues

Failure to honor or process modification or workout.

Accounting failures, excessive fees, property tax and insurance escrow issues – RESPA and Qualified Written Request

Failure to properly evaluate loan for HAMP or other workout

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Wrongful Foreclosure

“Accidental” foreclosure

Oral promise not to foreclose? Have to show specific, detrimental reliance

Non-judicial foreclosure system means borrower has to bring a suit

Modification / honoring a workout agreement – litigation is not always necessary

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Basic Contractual Relationships in Mortgage Servicing

Investor

BorrowerDepartment of

Treasury (agent is Fannie Mae)

ServicerPSA

SPA (HAMP)Note & DOT

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Other Issues

Two Loans? Be aware of the possibility of a deficiency judgment

Unfair debt collection tactics by first mortgage lender, second mortgage lender, debt collectors on charged off loans

HOAs and foreclosure

Incorrect credit reporting

Foreclosure rescue scams / predators before AND AFTER foreclosure

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RESPA

Qualified Written Request under 12 U.S.C. 2605(e). Borrower can dispute account errors or request information. Servicer must respond within 20 business days and correct or explain within 60. Timelines amended to 5 and 30 by Dodd-Frank.Remedies: Actual and statutory damages, costs and attorney’s fees.

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Types of Scams and Borderline Practices

Upfront Fee for Modification Assistance.Solicitation deception

Bankruptcy Related ScamsSham BankruptciesDamaging Bankruptcy Assistance

Lawyer or “Legal” related scams“Mass Joinder” suits“Forensic Audits”

Clouding title (make them prove the note)Lease purchase optionsRental fraudShort Sale concerns?

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Prohibition on Advance Fees

SB 94: Bars any person who “negotiates, arranges, or otherwise offer to perform a mortgage loan modification or other mortgage loan forbearance” from collecting advance fees for its services.

Effective October 11, 2009 - Applies to attorneys as well as others engaged in assisting borrowers with loan modifications and/or foreclosure avoidance

Civ. Code 2944.7(a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:

Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform. …

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Legal Claims Against Foreclosure Rescue Scammers

Rules Governing Quality of Attorney Work: Cal. R. Prof. Conduct 3-200 (can’t seek employment if member knows objective is to bring action without probable cause… or to present an unwarranted claim or defense in litigation)Bus. & Prof. Code § 6068(c), (d), (g) – duty of lawyer assert only legal and just causes, not to mislead court

FTC “MARS Rule” – 16 C.F.R. Part 322, Mortgage Assistance Relief Services

Prohibits fees until time that borrower gets an offer of modification that he or she acceptsAttorneys are exempted if they are providing mortgage assistance relief as part of law practice and comply with applicable state laws

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Legal Claims Against Foreclosure Rescue Scammers

Laws about Referral Services/ Working With Nonlawyers: Can’t pay a referral fee to f/c consultant or other person for referring distressed homeowners: Cal Rule. Prof. Conduct 1-320(B); Cal. Bus & Prof. Code §§ 6151 and 6152; Cal. Bus & Prof. Code § 6155 Can’t split fees: Cal. R. Prof. Conduct 1-320(A)Can’t aid f/c consultant in unauthorized practice of law, or form joint venture with nonlawyer to provide legal services: Cal. Rule Prof. Conduct 1-300(A), 1-310No unauthorized practice by paralegals: Cal. Bus & Prof. Code § 6450 – no legal advice, no explaining or recommending use of documents, no unlawful practice of law or paralegal services for nonattorney.

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How and Where to Make Complaints

California Attorney GeneralFederal Trade CommissionCalifornia Bar AssociationHUDLocal Legal Services OrganizationsCounty District AttorneysDRESmall Claims?http://www.loanscamalert.org/

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California notice periods for tenants

3 days for breach of contract. 60 days for periodic tenancies of more than 1 year. 30 days for periodic tenancies of less than 1 year.90 days for Section 8 tenancies and most post-foreclosure tenancies—but see PTFA which may extend through end of lease.“Just Cause” eviction protections, certain jurisdictions

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Protecting Tenants at Foreclosure Act (PTFA)Public Law 111-22, Sections 701-704Sunsets on Dec. 31, 2014Protects all bona fide tenants in any dwelling or residential real propertyA lease or tenancy is bona fide only if:

Tenant is not the mortgagor or the mortgagor’s child, spouse, or parent; andLease was the result of an arms length transaction; andRent is not substantially less than fair market rent (unless the reduction is due to governmental subsidy)

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Bona Fide Tenants Under PTFA

Must be given at least 90 days’ notice for owner move-in (note that a bank cannot “move in”)Entitled to stay until end of the lease, if lease entered into before “notice of foreclosure”Notice of foreclosure - the date title is transferred through foreclosure (Dodd-Frank Amendment)

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Security Deposit Return

Old and new owner jointly and severally liable for return under California lawSee California Civil Code, Section 1950.5

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Section 8 Tenants

Deemed bona fide tenantsNew owner takes title subject to both the Section 8 lease and the HAP contractEXCEPTION: Lease may be terminated with a 90 day notice if new owner will occupy unit as primary residenceAny eviction notices must also be sent to the Housing Authority. 24 CFR 982.310(e)(2)(ii).

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Lockout or Utility Shut-Off Illegal

Cal. Civil Code 789.3: Except after lawful eviction and pursuant to Cal law, unlawful for a landlord to:

Shut off utilities with intent to terminate lease. Change locks, remove windows or doors, or remove personal property.

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Utility Shutoffs

For individually metered units (including SFHs), 10-day notice of shutoff. Pub. Util. Code 777, 10009For master metered units, 15-day notice of shutoff. Pub. Util. Code 777.1, 10009.1Tenants have the right to put the accounts in their own names without paying for the landlord’s arrearages. 26

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Tenant’s Right to Recover Property

Cal. Civil Code 1965: Landlord cannot refuse to give back personal property left by tenant if:

Tenant requests return of specific property in writing within 18 days.Tenant offers to pay reasonable costs of removal and storage.